Citigroup Seeks to Halt US Order on Argentina Debt Fearing Penalties and Sanctions

Citigroup is seeking to stay an order from US judge Thomas Griesa, barring the bank from processing Argentina's payments on its restructured debt, as it fears regulatory and criminal sanctions by the South American country.

After Griesa blocked coupon payments to holders of debt issued under foreign law, Argentina fell into a technical default in July. Griesa earlier allowed Citigroup, which has a branch in Argentina, to make a one-off payment on US dollar-denominated bonds issued under Argentine law, but later reversed the decision.

The country has since been looking to circumvent the order and pay the creditors, with whom it made a debt restructuring deal after its record 2002 default.

Argentina's Economy Minister Axel Kicillof threatened Citigroup, one of the banks entrusted with processing its payments to holders of its restructured debt, with penalties and sanctions under Argentine law, if it does not process the $5m (£3m, €3.9m) interest payment by 30 September.

A lawyer for the bank told Griesa of its plans to seek a stay for the order during a hearing in New York.

"As your honor knows, we are facing a payment deadline of Sept. 30, so we are likely also to move for a stay," said Citigroup lawyer Karen Wagner, according to a transcript obtained by Reuters.

Wagner had earlier told the 2nd US Circuit Court that the bank had "a gun to its head" which would "probably go off" if the US Judiciary did not allow payment of funds blocked by Griesa's ruling.

Wagner noted that Citibank would comply with Griesa's order if the appellate court did not grant its request for a reversal of the order but that it posed "a serious and imminent hazard" for the bank.

"The Citibank has no gun to its head, but the Argentine law," Kicillof said in a response given to a local radio station.

He added that the bank has a "contract with the country that says that they have to allow payment of money deposited for bonds under Argentine law."

Griesa's adverse ruling and Argentina's subsequent default – the second in 12 years – come as part of the country's years-long legal battle with the so-called "vulture funds" that did not take part in the country's 2002 bond restructuring. The holdout funds are seeking full payment on the bonds from Argentina. The country, which is still suffering from its downturn, is sternly opposing the demand.